Back to top

Here's Why You Should Add U.S. Steel (X) to Your Portfolio

Read MoreHide Full Article

United States Steel Corporation’s (X - Free Report) stock looks promising at the moment. We are positive on the company’s prospects and believe that the time is right for you to add the stock to portfolio as it is poised to carry the momentum ahead.

Let’s take a look into the factors that make this steel giant a compelling choice for investors right now.

What’s Working in Favor of X?

Solid Rank & VGM Score: U.S. Steel currently has a Zacks Rank #1 (Strong Buy) and a VGM Score of B. Our research shows that stocks with a VGM Score of A or B combined with a Zacks Rank #1 or #2 (Buy), offer the best investment opportunities for investors. Thus, the company appears to be a compelling investment proposition at the moment.

An Outperformer: U.S. Steel has outperformed the industry over a year. The company’s shares have rallied around 56.9% over this period, compared with roughly 17.1% growth recorded by the industry. Forecast-topping earnings performance in the last three quarters, upbeat outlook for 2018 and the Trump administration’s trade actions on imported steel have contributed to the rally in the company’s shares.



 

Positive Earnings Surprise History: U.S. Steel has an impressive earnings surprise history. It has outpaced the Zacks Consensus Estimate in each of the trailing four quarters, delivering a positive average earnings surprise of 56.7%.

Strong Growth Prospects: The Zacks Consensus Estimate for earnings for 2018 for U.S. Steel is currently pegged at $5.40, reflecting an expected year-over-year growth of 178.4%. Moreover, earnings are expected to register a 7% growth in 2019. The company also has an expected long-term earnings per share growth of 8%.

Attractive Valuation: Going by the EV/EBITDA (Enterprise Value/ Earnings before Interest, Tax, Depreciation and Amortization) multiple, which is often used to value steel stocks, U.S. Steel is currently trading at trailing 12-month EV/EBITDA multiple of 5.8, cheaper compared with the industry average of 7.8.

Superior Return on Equity (ROE): U.S. Steel’s ROE of 17.9%, as compared with the industry average of 12.3%, manifests the company’s efficiency in utilizing shareholder’s funds.

Upbeat Outlook: U.S. Steel, last month, said that it now expects EBITDA for 2018 to be at or near the top end of the earlier announced range of $1.7-$1.8 billion. It also reaffirmed its second-quarter EBITDA guidance of around $400 million.

U.S. Steel is actively engaged in improving its cost structure and operations on a sustainable basis through its “Carnegie Way” initiative that includes actions such as manufacturing process/logistics improvements and savings on SG&A costs. These actions are expected to deliver meaningful benefits in 2018.

Moreover, higher steel prices boosted U.S. Steel’s results in the first quarter and the company is expected to continue to benefit from favorable pricing in the second quarter. Steel prices have been on an upswing in the United States on the back of the Trump administration’s trade actions to curb imports, reflected by the sharp increase in hot-rolled steel prices.

U.S. Steel is also set to reopen the second of two blast furnaces at its integrated steelmaking plant, Granite City Works, in Illinois. The company plans to restart the blast furnace around Oct 1.

The restart is expected to support the growing demand for steel made in the United States. The move will also support higher expected shipments starting in fourth-quarter 2018 and also enable U.S. Steel to support customers during its planned asset revitalization initiatives.

The company, in March, declared the restart of the other Granite City Works blast furnace and steelmaking operations that brought back 500 employees. The restart of that blast furnace is in progress.

Other Stocks to Consider

Other top-ranked stocks worth considering in the basic materials space include Westlake Chemical Corporation (WLK - Free Report) , The Chemours Company (CC - Free Report) and FMC Corporation (FMC - Free Report) , each carrying a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Westlake Chemical has an expected long-term earnings growth rate of 12.2%. Its shares have shot up roughly 62% over a year.

Chemours has an expected long-term earnings growth rate of 15.5%. The company’s shares have gained around 15% in a year.

FMC has an expected long-term earnings growth rate of 14.3%. Its shares have rallied roughly 20% over a year.

Looking for Stocks with Skyrocketing Upside?

Zacks has just released a Special Report on the booming investment opportunities of legal marijuana.      

Ignited by new referendums and legislation, this industry is expected to blast from an already robust $6.7 billion to $20.2 billion in 2021. Early investors stand to make a killing, but you have to be ready to act and know just where to look.   

See the pot trades we're targeting>> 
 



More from Zacks Analyst Blog

You May Like

Published in